I am a Burmese exile taking a near-permanent refuge in New York and Sydney. Here are my essays about Burma and anything else I feel like writing about. And posting the articles I like from selected sites. Bridging Burma to the world this Blog is more of a Politically-Oriented Literary Blog than a Plain News Blog or a Sophisticated Thoughts Blog.

Sunday, June 28, 2015

Australian Housing Market Facing ‘Bloodbath’ Collapse?

The Australian real estate market is in
the grip of the biggest housing bubble in the nation's history and Melbourne
will be at the epicentre of an historic "bloodbath" when it bursts,
according to two housing economists

A bloodbath in the housing market, however, appears a near certainty due
to the magnitude of falls required for housing prices to again reflect economic
fundamentals. Lindsay David and Philip Soos, who have written books on the
overheated housing market, have berated the housing industry and politicians
who refuse to acknowledge the existence of a bubble due to a perceived shortage
of housing in the major capitals.

Two housing economists say Australia is
experiencing a housing bubble. In a blunt submission to the upcoming
parliamentary inquiry into home ownership, the pair claim there is actually an
oversupply of housing, just as there was in the US before the market collapse
that precipitated the global financial crisis.

And the largest oversupply is in
Melbourne where there has been a frenzy of inner-city apartment building. They
forecast the total available homes in Victoria outstrip demand by 123,000. NSW
has a surplus of more than 40,000, according to their analysis, which was based
on data from the Australian Bureau of Statistics.

"Contrary to the analyses of the
vested interests, the data clearly establishes Australia is in the midst of the
largest housing bubble on record. Policymakers are caught between a rock and a
hard place, as implementing needed reforms will likely burst the bubble,"
Mr David and Mr Soos state in a submission on behalf of real estate and
financial services research house LF Economics.

They believe the current bubble is
worse than those in the 1880s, 1920s, mid-1970s and late 1980s. "Australian
economic history and recent international events illustrate collapsing housing
bubbles can quickly increase the number of unsold properties [stale stock],
shattering the pervasive myth of a deleterious dwelling shortage," they
wrote.

"Falling housing and rental prices, including sales, would be a
doomsday trifecta for investors as they suffer losses in both capital prices
and net rental incomes. This calamitous outcome is especially likely in
Melbourne where rents have not increased in real terms since 2010. Melbourne is
primed to become the epicentre of a legendary housing market crash due to the
combination of a staggering boom in real housing prices [178 per cent]. Perth
is also in a serious predicament.

Housing prices across all capital cities remain grossly inflated
relative to rents, income, inflation and GDP. What event or set of events
triggers the beginning of the end of the housing bubble is not yet known. A
bloodbath in the housing market, however, appears a near certainty due to the
magnitude of falls required for housing prices to again reflect economic
fundamentals."

Treasurer Joe Hockey sparked a national
debate on house prices this month when he rejected the existence of a bubble,
saying people would not be buying houses if they were unaffordable. His
statements directly conflicted with his departmental head John Fraser and some
warnings by Reserve Bank of Australia governor Glenn Stevens.

But Mr David and Mr Soos believe even
the most bearish officials underestimate the coming collapse that has been made
worse by rampant lending of "colossal sums of private debt to
speculators".

Their analysis was greeted with
scepticism by some market watchers. Domain Group economist Andrew Wilson said
Australia does not have a history of cataclysmic price falls and there is
little prospect of the sharply higher interest rates that have brought on
previous price falls. The sharpest decline occurred in Sydney in 2008 when the
market fell 4.5 per cent in a year, he said.

"The language is certainly getting
more exciting by the week. It has almost become a truism in the housing market
that we're not just in a bubble but we're in the mother of all bubbles,"
he said.

Dr Wilson said the supply picture was a
"mixed picture" and an oversupply in the Melbourne CBD was tempered
by dire shortages in inner and middle ring suburbs. He said the prospect of a
bloodbath like the one described by LF Economics was "absolutely
remote".

Janine Dixon, an economist at
University of Victoria, said last week that prices in inner Melbourne and
Sydney were only going "up and up". The home ownership inquiry begins
on Friday. Treasury, the Department of Prime Minister and Cabinet and the
Department of Social Services are scheduled to appear.